According to an article published in the National Mortgage News online (Mortgage Lenders’ Many Headaches, 10/02/13), lenders are preparing to deal with a plethora of new regulations and mandates.
- Fannie Mae and Freddie Mac will require ALL loans be 100% free of defects.
Almost 80% of all conventional loans originated in the United States, regardless of lender, are eventually sold to Fannie or Freddie. For these loans, Fannie and Freddie have created new quality control programs to catch even the most minor error or defect in the loan file. Come January 2014, lenders will be subject to additional loan reviews and risk assessments. If any defects are found, lenders will be required to buy back these loans much sooner than they have in the past.
Think about this for a moment. Mortgage loan packages are complex and include paperwork from about a dozen sources, including dozens of disclosures in addition to appraisals, credit reports, tax returns, and more supporting documentation than can be mentioned here. Fannie and Freddie purchase tens of thousands of loans every month. How realistic is it to assume and require that every document, every date, every signature be perfect and free of ANY defect, including the smallest typo? And just how relevant might these defects be? The bottom line is that a minor defect on a strong loan that performs (borrowers consistently make payments) should have no consequence whatsoever. Nevertheless, additional layers of auditing and review will certainly add more costs to the mortgage process.
- Fannie Mae is still finding flaws and deficiencies in appraisal reports.
The Office of the Comptroller of Currency is still seeing serious deficiencies in many home appraisals and is ordering banks to beef up their oversight of the appraisal process, claimed Darrin Benhart, the OCC’s Deputy Comptroller for Credit and Market Risk. Additional layers of internal audits and quality control will also add more costs to the mortgage process.
- Fair Lending Clampdown.
Regulators are cracking down on Fair Lending violations, even where there is no overt discrimination or violations present! With the Department of Justice’s position on Disparate Impact (see HUD’s New “Disparate Impact” Ruling is Bad News for Both Lenders AND Realtors for a full explanation), lenders are finding it necessary to hire fair lending compliance officers to improve their quality control. Lenders now must ensure there isn’t even the slightest appearance of any statistically measurable discriminatory effects, let alone discriminatory actions.
So how will these changes effect borrowers?
As is the case with all regulations, there are costs associated with implementing, monitoring, and complying with these changes. And while lenders will initially bear the burden of these additional costs, ultimately it is the consumer who will pay more.
Warren Goldberg is President of Mortgage Wealth Advisors, a Certified Mortgage Planning Specialist®, and a published author. His interviews include Blog-Talk Radio, Newsday, and the Long Island Herald. Since 1992, he’s been sharing his financial knowledge and wealth-building strategies, including how to properly use your mortgage as a financial tool. His clients regularly express their trust and appreciation by recommending friends and family call when in need of mortgage, real estate, and financial guidance.